The February issue of Futures magazine takes a look at some innovative new approaches to accessing alternative and traditional investments.
In the “DNA of performance” we examine MSR Investment’s Investable Index Platform that allows qualified investors to select tailored indexes to match specific return drivers. While the basis of each of the 1000 investable indexes offered on the platform are underlying futures contracts, investors can access traditional long-only equity exposure or a mix of various liquid alternative exposures.
MSR founder Michael Rulle says the investable index offering is more comprehensive than other low-cost beta investments and provides investors with more flexibility in defining “their own beta as well as affording them the tools to identify alpha.”
There is nothing particularly new about the attempt to create various beta products for actives management strategies, but MSR is tying it with access to the BarclayHedge Hedge Fund and Managed Futures data bases to allow potential investors to test the correlation of various managers to its roster of investable indexes.
The platform is not simply a group of hedge fund or managed futures beta strategies but a roster of alternative strategies investors can pick and choose from. Whether or not the indexes can outperform similar active management strategies at a lower cost is unknown, but an allocator can use the indexes to define a specific exposure and test the correlation of numerous active strategies to the family of indexes.
“It is true that low-cost so-called beta products have been introduced,” Rulle says. “An example would be AQR's trend following strategy. Putting aside the issue of whether AQR is any more or less a beta strategy than any other trend following program, what truly distinguishes it from other trend followers is its low-cost fee structure.
“MSR Indices is not a single investable program or even a large number of investable programs,” Rulle says, “It is a comprehensive platform of preexisting investable strategies which investors can use to combine and custom build a virtually unlimited number of strategies and portfolios across equities, fixed income, currency, and commodity markets.”
Also in February, Tim Pickering, founder and chief investment officer of Auspice Capital, introduces the CTA Value Added Index. The index was developed to demonstrate the risk-adjusted benefit of including managed futures strategies within a core equity portfolio. While there has been a great deal of research showing this over the years and it is no surprise to readers of Futures.
The issue for trend following, as many investors have become painfully aware of from 2009 through 2013, is the long periods of underperformance. Pickering shows how the index can help investors to dynamically allocate to the space keeping a minimal allocation to managed futures in challenging periods and dialing up that allocation to improve overall portfolio performance.
Finally, Futures speaks with Covenant Capital Management’s Scot Billington about CPM’s high return Optimal Program. Billington and his team have produced a great deal of research into the efficacy of common risk measures and points out the difference between volatility and risk.
Covenant’s core programs have produced some of strongest consistent returns in the managed futures space for 15 years.